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Election Season on the Horizon: Should You Buy This Dividend Stock?
The election season is well and truly underway, as incumbent Joe Biden battles former president Donald Trump to occupy the White House. With the first debate between the two contenders set for this Thursday, June 27, voters will get their first chance to hear the candidates weigh in on key issues ahead of the November election.
With widely different opinions on how to steer the country forward, there's a laundry list of industries and stocks set to move based on the presidential outcome. One “third rail” issue that has been in the limelight for years now is gun control, which tends to elicit strong reactions on both sides of the political spectrum.
As pundits predict a tight race in the run-up to the election, there's one legacy firearm player that's predicting strong demand for its stable of products ahead of the vote - Smith & Wesson Brands (SWBI).
On its latest earnings call, CEO Mark Smith explained, "We definitely expect a tailwind from the election as the election campaign really - activity really kicks in usually towards the late summer or early fall through the election period. So, definitely, there will be a tailwind there to our usual busy season."
With demand set to ramp higher, here's what else you need to know about this dividend stock as campaign season heats up.
About Smith & Wesson Brands
Founded way back in 1852 and based out of Springfield, Mass. until its recent move to Tennessee, Smith & Wesson Brands (SWBI) is one of the oldest firearms manufacturers in the United States. The company manufactures and sells firearms under various brands, including Smith & Wesson, M&P, Thompson/Center Arms, and Gemtech. Its market cap currently stands at $667.45 million.
SWBI stock is up 8.7% on a YTD basis, and it offers shareholders a dividend yield of 3.52%. That's based on its quarterly dividend of $0.13 per share.
While that's not the highest yield you'll find on Wall Street, it's above the consumer discretionary sector median, which stands around 2.2%. And while Smith & Wesson's dividend growth track record is not that long (4 years), its payout ratio of 52.3% suggests the dividend is well-covered by earnings, while preserving capital for future growth initiatives.
So, does Smith & Wesson deserve a place in your portfolio or not? Let's have a closer look at the fundamentals.
Solid Q4 Showing
Smith & Wesson closed FY 2024 with a strong showing in its fiscal Q4, as the company reported revenue and earnings above Wall Street's expectations.
Revenues for the quarter came in at $159.15 million, indicating yearly growth of 9.9%. Plus, Q4 EPS of $0.45 reflected growth of 40.6% from the prior year, while at the same time comfortably outpacing the consensus estimate of $0.35. Notably, over the past five quarters, SWBI's earnings have failed to beat expectations on only one occasion.
SWBI's cash flow generation received a significant boost in the quarter, as the company reported net cash from operating activities of $106.74 million and free cash flow of $38.04 million, materially higher than the previous year's levels of $16.73 million and $13 million, respectively.
Overall, the company closed the quarter with a cash balance of $60.84 million, an improvement from the prior year's balance of $53.56 million.
Smith & Wesson's Market Leadership
Smith & Wesson is among the top firearm manufacturers in the U.S. and globally. With a market size of about $5 billion and demand expected to grow in the coming years, Smith & Wesson's robust market position leaves it well-positioned to increase revenue and profits.
Moreover, to address this rise in demand, the company also has its relatively new and very modern Tennessee headquarters, which will be able to churn out quality products for decades - and in a more friendly backdrop for gun manufacturers, too.
With its relocation complete, SWBI also has a very strong balance sheet to complement the operations at this new facility.
Analysts Expect Double-Digit Upside
Amid limited analyst coverage, all 3 analysts tracking SWBI have unanimously deemed the stock a “Strong Buy,” with a mean target price of $18.67. This suggests an expected upside potential of about 26.6% from current levels.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
